Massachusetts 7-Eleven Ruling May Threaten Some Franchise Models

05 April 2022 Law360 Publication
Author(s): Peter Loh Elizabeth S. Stone

In Patel v. 7-Eleven Inc., 7-Eleven franchisees asserted a putative class action claiming that 7-Eleven misclassified them as independent contractors and not employees, in violation of Massachusetts law. The U.S. District Court for the District of Massachusetts in 2020 granted 7-Eleven's motion for summary judgment and dismissed the plaintiffs' claim based on, in part, 7-Eleven's argument that the Federal Trade Commission's Franchise Rule preempted Massachusetts' state employment statute. On appeal to the U.S. Court of Appeals for the First Circuit, 7-Eleven argued that the Franchise Rule requires franchisors to exercise control over the operations of their franchisees and thus preempts the Massachusetts statute dictating that such control creates an employment relationship.

Last August, the First Circuit certified the question of whether the federal rule preempts the Massachusetts statute to the Massachusetts Supreme Judicial Court, which sided with the franchisees on March 24 and held that the Franchise Rule does not preempt state labor laws. Therefore, franchisees can be employees entitled to robust state wage and hour benefits.

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